Updated
GL-A-06
Glossary · Structures and trusts
Articles of association - the document that decides what you can do as a member
01 / In 30 seconds
The short answer
- What it is
- The articles of association are the document setting out a company’s internal rules
- What it governs
- The powers of the governing bodies, decision-making procedure, members’ rights, transfer of shares
- Why it matters
- It is the articles that decide what you can and cannot do as a member
- When to read them
- Before entering the business and before buying a stake, not when a conflict has arisen
- A common gap
- No provision for a member’s exit or for resolving deadlocks
02 / In plain words
What Articles of Association means
The articles of association are the document setting out a company’s internal rules: how the governing bodies are formed and operate, which decisions require what majority, what rights and obligations members have, how shares are transferred and how profit is distributed.
For someone entering a business, this is the most important document after the share purchase agreement. It is the articles that determine whether you will be able to influence decisions, block an action you find unacceptable, and leave the company, and on what terms. A minority member without well-drafted articles may find themselves formally holding a stake but having no influence at all.
The most common gap is the absence of exit and deadlock resolution mechanisms. While the partners are on good terms, these clauses seem unnecessary. When relations sour, it turns out that it is impossible to leave the company and no decision can be taken because the votes are split equally. Such mechanisms need to be set out at the start.
A case from practice
A client was entering a business with a minority stake. Under the standard articles they could neither block key decisions nor leave on clear terms. Amendments were discussed before the deal — after it, such a conversation would no longer have been possible.
When it is critical
- Entering a business with partners
- Buying a stake in a company
- Bringing in an investor
- Setting up a joint venture
- A conflict between members
- Planning an exit from the business
03 / What it covers
What the articles should contain
Management
- Powers of the governing bodies
- Procedure for convening meetings
- Required majority
Participants
- Rights and obligations
- Voting procedure
- Information rights
Shares
- Transfer of shares
- Pre-emption right
- Distribution of profit
Conflicts
- A member’s exit
- Deadlocks
- Dispute resolution procedure
04 / How it works
How to approach the document
Read it before entering the business
The articles are read before the deal, not during a dispute.
Review it with a lawyer
A lawyer explains your rights and risks.
Check the exit mechanisms
How to exit and what happens on a tied vote.
Agree amendments
Amendments are agreed with partners before the deal.
Register the new version
The new version is filed with the register.
05 / Key facts
What you need to know
01What it governs
Internal rules
Powers of the bodies, majorities for decisions, members' rights, share transfers, profit distribution.
02Why it matters
A minority's influence
Without well-drafted articles you have a stake but no influence: you cannot block a decision or exit.
03A common gap
Exit and deadlock
Exit mechanisms and deadlock resolution are written in at the start, while relations are good.
04Changes
A qualified majority
Amendments usually need a higher majority. Some issues are handled in a shareholders' agreement.
Common mistakes
Joining a business without reading the articles
Review the articles with a lawyer before buying a stake.
Using standard articles without adapting them
Fit the articles to the members' stakes, roles and plans.
Leaving out exit and deadlock
Add rules for exit, valuing a stake and breaking a tied vote.
06 / Expert advice
How to prepare in advance
The articles are read with a lawyer before entering the business, assessing three things: whether you can influence key decisions, whether you can obtain information about the company’s affairs and whether you can leave. If the answers are unsatisfactory, the terms are discussed on entry — afterwards they usually cannot be changed.
What we do for you. If your business is the basis of income for an immigration application, its corporate documents will be examined. We look at them from that angle too: how clear the ownership structure is and whether it raises questions in the check.
Anna KovalevskayaLead lawyer for EU citizenship and residency, 12 years of practice
07 / Questions
Frequently asked questions
The document setting out internal rules: the powers of the governing bodies, the decision-making procedure, members’ rights, transfer of shares and distribution of profit.
Because they determine your real rights as a member: the ability to influence decisions, obtain information and leave the company.
For simple situations — possibly. But they rarely take into account relations between partners and almost never provide for exit and deadlocks.
A situation in which no decision can be taken — for example, when the votes are split equally. The mechanism for resolving it is set out in advance.
Usually a qualified majority of members is required. Once relations have soured, assembling one is practically impossible.
The articles are a public corporate document; a shareholders’ agreement is a private arrangement. They are often used together.
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